Investing in real estate is one of the major decisions we take in our life. A middle-class person will buy at the most one or two houses in his or her entire lifespan. So it is good to take into consideration all aspects, before making a decision. in this article we talk about Real Estate Mortgage.
Real Estate Mortgage
Your EMI component.
How much you should budget for your EMI component depends upon your lifestyle. Do keep in mind that you need to take care of all your expenses, savings, emergency fund etc., from your take home income.
In most real life budgets, the amount of money allocated to house loan payments falls in the range of 20%-30%. But in case you have more money at hand and want to pay off your loans early, you can do so. It all depends upon how well you balance your earnings and expenditure.
Your house requirement.
Once you decide the EMI that you can pay, then you need to understand the eligibility of your loan. This will give you an understanding of your home affordability.
For e.g., if you are taking a home pay of Rs.50000/- and you can pay an EMI of around 30%, then the maximum affordable loan is around 14 lakhs. Also, remember that this is just the loan amount and you will also have to pay a down payment amount.
Normally banks lend up to 80% of the house value and so the remaining 20% is from your own savings.
Buying a big or a small house is entirely your decision. If you want to spend more on a big house, then you will need to reduce other expenses. In case of buying a small house, your risks are less and you can deal with other financial emergencies.
The rate of Interest.
The rate of interest is an important part of your loan component. There are two types of interest viz. fixed interest rate and floating interest rate.
A floating rate of interest continuously changes with inflation, RBI regulations and bank lending rates. A fixed rate of interest gives you the option of “locking in” the interest rate. It is typically half a percentage point higher than the floating interest rate.
Both have their advantages and are dependent upon the economic and the banking conditions in the country. Many lending banks offer a hybrid option, which includes a part of your mortgage in fixed rate and a part in floating rate.
Banks ask for around 20% as down payment. It would be good if you can pay more as a down payment but at the same time do not overstretch and push yourself. Ensure that your emergency fund and other family expenses are taken care of properly.
Property as an investment or for residential purposes.
Your decision should be very clear whether the house property is for residential or as a real estate investment. See all your investment options and take a decision which works best for you. If you are entering into real estate, then you need to do research on the area in which you wish to buy the kind of property you wish to invest in and your investment time horizon.
Should you buy a new house or a resale house.
A new house will always cost you more than an old house, even if they are in the same area. Some important points to be considered are:
- Buying a new apartment involves paying money for something that you have not yet seen. You have to depend on the reputation of the builder.
- It involves the risk of late handing over of your property.
- An existing property will give you a clear idea of things on the ground and will remove the element of risk while taking a decision.
- The maintenance cost of a new house will also be more.
- Most of the new buildings will be in an underdeveloped area and so there will be scope for development and an increase in the value of your investment.
These are the top 6 tips for a good real estate mortgage. It is good to be well informed in order to take a wise decision with regards to all your investments.